Consumers may be losers in an AT&T merger with T-Mobile

An AT&T takeover of T-Mobile could reduce competition and choice and raise prices.

Bythe Monitor's Editorial BoardMarch 28, 2011

It’s no secret that the mobile Internet – smart cellphones and tablets – is a hothouse blossoming with innovation. Every day these devices become more useful (some argue “essential”).

The wireless future isn’t largely about voice calls: It’s about reading (books, newspapers, magazines), shopping, and staying in touch with social networks. Coming soon will be communicating with other devices (such as a car) and even replacing a credit card to make on-the-spot retail purchases.

That’s why federal regulators must take a long, thoughtful look at the proposed merger of wireless carriers AT&T and T-Mobile proposed last week. The merger could threaten the very competition that has benefited consumers and created new opportunities for countless startup companies.

After absorbing T-Mobile, now owned by Deutsche Telekom, AT&T would become the largest cellphone carrier in the US with nearly 40 percent of the market. The current No. 1 carrier, Verizon Wireless, would drop to No. 2 with just over 30 percent.

Together, they would form a near “duopoly” in the marketplace, with only Sprint, at about 12 percent, still a significant player. And though Verizon has said it’s not interested in acquiring Sprint, the two companies might yet decide they should merge as a counter to AT&T and T-Mobile, reducing competition even further.

T-Mobile has been a low-cost leader with consumer-friendly pricing plans for both voice and data. It also has a decent track record for service, unlike AT&T, which ranked at the bottom of the pack for customer satisfaction in a recent Consumer Reports survey. Which corporate culture is likely to prevail after the merger?

The administration also allowed Comcast, the nation’s largest cable TV company, to absorb NBC-Universal, the TV network. Again, the businesses were closely related – one creates content and the other distributes it – but they weren’t principally direct competitors, such as AT&T and T-Mobile now are.

Google’s innovative Android operating system could be a loser, too. T-Mobile has an open approach to app development and availability, meaning that it is easier for an app developer to offer its product directly to consumers without being approved by the carrier. Fewer carriers could make it easier for Verizon and a bigger AT&T to control apps.

AT&T argues that prices for mobile customers have been dropping in recent years, proof that plenty of competition exists. It also says that with the merger, service to rural areas will improve and the upgrade to the next level of technology – 4G – will come faster.

Those claims should be thoroughly vetted. Meanwhile, the era of low prices may be ending. AT&T has already eliminated “all you can eat” data plans that allow unlimited data usage. It has installed tiers with pricing caps on its data plans, making phone ownership more expensive for heavy users.

Verizon has said it’s likely to follow this year. More expensive data could mean less use of the burgeoning abilities of smart phones and a general slowing of innovation in the whole industry.

Influential tech analyst Om Malik has summed up the effect on consumers if the merger goes through: “[T]he freewheeling culture of downloading apps that helps spawn the new mobile Internet revolution would come to an end,” he writes in his blog. “Bluntly put, AT&T is carbon monoxide for this blossoming ecosystem.”

Decades ago the federal government broke up a telephone monopoly and brought in an era of unprecedented innovation, choice, and price competition for consumers.

Now government may need to step in again to make sure that the heat stays on in the innovative hothouse that was created.